Asisa sounds alarm as policy lapses rocket amid cost-of-living crisis

An estimated 8.4-million recurring premium policies lapsed in 2022, a million more than in 2021, the Association for Savings and Investment SA (Asisa) said on Wednesday.

A lapse occurs when the policyholder stops paying premiums for a risk policy with no fund value.

The statistics reflect the cost-of-living crisis and its ripple effect on the insurance industry.

Almost 1.2-million fewer recurring premium polices were sold in the reporting period than in 2021.

“If you struggle to make ends meet, the temptation to let go of your life cover can be overwhelming. But before you make this irreversible mistake, weigh up the expense of your monthly premium against the dire financial impact the loss of your income could have on your family,” said Hennie de Villiers, deputy chair of the Asisa life and risk board committee.

The statistics show that 689,888 recurring and single-premium savings policies were surrendered in 2022.

The surrender involves a policyholder withdrawing the fund value before a savings policy matures. While this is lower than in 2021 when 938,148 savings policies were surrendered, this is still too high and so concerning, said De Villiers.

Consumers are taking strain from elevated inflation and interest rates, which invariably reduce their disposable income, particularly among the high-to-lower income earners.

The cost-of-living crisis poses another challenge for insurers, which are looking to grow new business volumes after the devastating impact of the Covid-19 pandemic.

SA life insures paid out policyholders and beneficiaries claims and benefits of R578bn, the second-highest paid in a year.

The payments included claims against life, disability, critical illness and income protection policies, as well as retirement annuity and endowment policy benefits.

De Villiers said that while the total of claims and benefits paid dropped from a record R608bn paid in 2021 when death claims due to the pandemic were at their highest, the statistics show the impact of Covid-19 is likely still to be a threat and is still costing lives.

“Last year, life insurers paid 501,785 death claims, 26% lower than in 2021, but still 24% higher than in 2019,” said De Villiers.

However, the life insurers are well capitalised as they held assets of R3.7-trilllion against liabilities of R3.4-trillion at the end of the reporting period. This left the industry with free assets of R347bn at end-December 2022, almost double the capital required by solvency capital requirements, said Asisa.

Assets held by the country’s life insurers at end-2022 were far higher than at end-2019, before the pandemic. 

mahlangua@businesslive.co.za